Unexplored Territory: CPP and the Power Grid

With all the debate about the Obama administration’s Clean Power Plan, its impact on the utility industry and the U.S. power grids has not been deeply explored.

“I foresee real difficulties. I can’t fit them together, I don’t know how that’s going to work,” said Linda Stuntz, a deputy secretary at the Energy Department under President George H.W. Bush. She discussed the interaction between the power grid and CPP requirements at a hearing in the House Energy and Commerce Subcommittee on Energy and Power on Wednesday.

The hearing focused on the Federal Power Act, the statute that gives the Federal Energy Regulatory Commission its legal authority. Rep. Joe Barton (R-Texas) questioned how the law would be affected by the Environmental Protection Agency’s Clean Power Plan, which establishes aggressive standards for power plants in order to reduce carbon pollution.

It is unclear how these requirements would interact with the current state of the electrical grid, particularly if the new rules tilt the market toward renewables.

Think of the wholesale electric market like Uber — generators come online to provide the electricity needed, just like drivers show up to help of people get from point A to point B. As the number of Uber drivers needed increases, prices surge and all drivers get to make more money. In the wholesale electricity market, the higher demand gets, the more generators come online, causing the price of electricity to increase, as well as the payout price for all generators.

The Clean Power Plan has the potential to upend this system by causing traditional energy generators — coal or nuclear — to exit markets where they still may be needed in peak times. Renewable energy can meet much of the demand during some periods of the year and during certain times of day, which makes it unnecessary for traditional power sources to bid in the auction during those times. The lack of demand during those time periods also signals to base load plants, such as nuclear and coal, that they should exit the market.

That causes problems when renewable energy is not able to meet all of the demand. CPP encourages the use of renewables, and some energy analysts worry that might cause the market for traditional power to dry up, leaving people in the dark.

“The simplest way I can put it is, if you’re a state and you have a plan that depends on importing power from somewhere else, but [that state is] not going to send it out anymore because they want the clean power — I don’t know how it’s going to work,” said Stuntz.

The hearing marked the beginning of a long-term review by the committee about the capability of the nation’s electric system and future challenges. The Federal Power Act is expected to remain on the committee’s agenda into next year.

“We won’t solve the serious problems facing the markets overnight,” said House Energy and Commerce Energy and Power Subcommittee Vice Chairman Pete Olson (R-Texas). “We won’t sort out the difference between the real problems and the empty allegations today either. Rather, this hearing will set the stage for our work on all of these topics.”

Wednesday’s hearing also marked the first time the subcommittee has met since former chairman Rep. Ed Whitfield (R-Ky.) announced he would not be returning to Congress following the Labor Day holiday. Olson chaired the hearing in Whitfield’s absence and will continue to handle the subcommittee’s duties.

Questions about CPP’s impact on the electric supply are also coming up in court. This month, the D.C. Circuit Court of Appeals has scheduled more than three and a half hours to hear oral arguments over the plan. In a motion filed by the utility industry, the petitioners argued that the rule will “jeopardize the reliability of the nation’s electric company” and increase costs for consumers.

“EPA, however, cannot show that Congress intended to allow any federal agency — much less one not even tasked with setting energy policy — to so radically restructure the nation’s electricity system, bypassing all federal and state energy laws and the regulators that have overseen the industry for over seventy years,” the petitioners said.

The market may be shifting on its own, calling into question just how much impact CPP will have. On Tuesday, former Colorado Public Utilities Commission Chairman Ray Gifford and Matthew S. Larson, both partners in the law firm of Wilkinson Barker Knauer LLP’s Denver office, released a white paper on utility plant requirements and other market forces. They noted that coal and nuclear generators are already exiting markets, even without the Clean Power Plan.

“Base load power from coal-fired and nuclear generation is exiting wholesale power markets across the country,” the paper states. “This ongoing development has received little attention compared to the more publicized Clean Power Plan rule. However, the fundamental issues lurking beneath these market exits may have a more significant impact on the immediate future of the electric grid — regionally and nationally — than does EPA regulation or any international climate agreement.”

The paper cites as an example Pacific Gas & Electric’s proposal to replace the Diablo Canyon nuclear facility in California with a renewable energy facility to replace lost electrical capacity and address carbon compliance issues.

“Much attention has deservedly been paid to the policy and real-world implications of the Clean Power Plan,” Gifford said in a statement. “But the fundamental problems lurking beneath these market exits could have a more significant impact on the immediate future of the electric grid.”